-
Table of Contents
These reports were compiled using a product of Thomson Reuters
www.thomsonreuters.com
1
Rpt. 26628803 MERITOR INC 2 - 1029-Jul-2015 PIPER JAFFRAY -
COMPANY REPORT
- POTTER, ALEXANDER
Rpt. 26627627 MERITOR INC 11 - 1829-Jul-2015 KEYBANC CAPITAL
MARKETS
- HOSELTON, BRETT D
Rpt. 26624661 MERITOR INC 19 - 2129-Jul-2015 KEYBANC CAPITAL
MARKETS
- HOSELTON, BRETT D
Rpt. 26492588 MERITOR INC 22 - 4813-Jul-2015 BUYSELLSIGNALS
RESEARCH
- RESEARCH TEAM, ET AL
Rpt. 26260797 MERITOR INC 49 - 5914-Jun-2015 KEYBANC CAPITAL
MARKETS
- HOSELTON, BRETT D
Rpt. 25943897 MERITOR INC 60 - 6829-Apr-2015 PIPER JAFFRAY -
COMPANY REPORT
- POTTER, ALEXANDER
-
C O M P A N Y N O T EJ u l y 2 9 , 2 0 1 5
Meritor, Inc. (MTOR) NeutralUpping Price Target by $1 to Reflect
a Stronger Margin Outlook, Staying Neutral
PRICE: US$13.79Price as of the close July 29, 2015
TARGET: US$14.007.0x 2016E EV/EBITDA (EBITDA $393.2m,$1.36bn net
debt, 100.3m shares)
Alexander E. PotterSr Research Analyst, Piper Jaffray &
Co.612 303-6709, [email protected] DongResearch
Analyst, Piper Jaffray & Co.212 284-9338,
[email protected]
Changes Previous CurrentRating NeutralPrice Tgt US$13.00
US$14.00FY15E Rev (mil) US$3,528.5 US$3,541.9FY16E Rev (mil)
US$3,801.8 US$3,803.1FY15E EPS US$1.36 US$1.47FY16E EPS US$1.74
US$1.80
52-Week High / Low US$15.65 / US$9.46Shares Out (mil)
100.3Market Cap. (mil) US$1,383.1Avg Daily Vol (000) 1,210Book
Value/Share US$(6.16)Net Cash Per Share US$(7.50)Debt to Total
Capital 151.0%Div (ann) US$0.00Fiscal Year End Sep
Price Performance - 1 Year
Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15
16
15
14
13
12
11
10
9
USD
Source: Bloomberg
CONCLUSIONWe are reiterating our Neutral rating on MTOR
following a solid Q3 characterized byimpressive margins. MTOR
increased margin and EPS guidance, reflecting continuedcost control
measures and operational efficiency. Revenue guidance for the
yearremained intact at $3.5B-$3.55B (inclusive of new incremental
revenue from truck makerPCAR). MTOR's margin performance under the
M2016 initiative speaks for itself - andwe are raising our price
target to $14 (from $13) thanks to a higher margin outlook- but we
still think MTOR lacks the growth drivers necessary to offset ~60%
revenueexposure to North America, where the truck cycle seems
likely to fade in 2016/2017.
Strong Q3 results marked by solid sales and EPS performance.
Revenue of $909Mmissed our estimate of $919M but bested consensus
of $908M (though revenue wouldhave been a strong "beat" if not for
continued FX headwinds). Q3 adjusted EBITDAmargin of 9.6% topped
our estimate of 8.9%, and management guided this metricup to 9.3%
for the full year (up from 9.0%-9.2% previously). Adjusted EPS
was$0.41 which was well above PJC/street estimates of $0.33/$0.32.
Full year EPS is nowguided at $1.40-$1.50 (up from $1.30-$1.40),
thanks to higher margins and an equityrepurchase program that will
last through the end of 2016.
Growth drivers needed to leverage M2016 cost cuts. For evidence
that MTOR hasused the M2016 initiative to deliver higher margins,
one need look no further thanthe company's operational performance
over the last several quarters. We are nowfirmly convinced that a
10% adjusted EBITDA margin is achievable in 2016, evenat revenue
levels far below those originally envisioned by the plan. But as
always,revenue growth remains our primary sticking point. An
expanded relationship withPCAR does suggest that MTOR is finding
ways to grow despite a peaking truck cyclein North America, but
it's unclear whether these wins can be replicated, or
whethervertical integration at other OEMs might erode the impact of
these new revenuestreams.
Staying Neutral, raising price target to $14 (from $13). We're
maintaining our Neutralstance on the shares but raising our price
target to $14, due primarily to strongermargins and a recovering
truck cycle in Europe. Our price target remains based on 7x2016
EV/EBITDA. We think cost-cutting and operational efficiency are
positives, butevidence of sustainable top-line growth will be
needed before these cost savings canbe fully leveraged. We will
remain Neutral on MTOR until such evidence materializes(or until
the stock's multiple contracts).
3
RISKS TO ACHIEVEMENT OF PRICE TARGETSteel price fluctuations,
macroeconomic sluggishness, competition from independentand captive
suppliers, customer concentration, high leverage
COMPANY DESCRIPTIONMTOR makes axles, drivelines, suspensions,
and brakes for trucks & machinery.
YEAR
2014A2015E2016E
REVENUE (US$ m)Dec Mar Jun Sep FY CY FY RM CY RM
900.0 954.0 979.0 933.0 3,751.0 3,752.0 0.4x 0.4x879.0A 864.0A
909.0A 889.9 3,541.9 3,604.6 0.4x 0.4x941.8 955.5 985.0 920.8
3,803.1 3,768.0 0.4x 0.4x
EARNINGS PER SHARE (US$)Dec Mar Jun Sep FY CY FY P/E CY P/E0.12
0.22 0.28 0.35 1.02 1.21 13.5x 11.4x
0.35A 0.41A 0.41A 0.30 1.47 1.52 9.4x 9.1x0.40 0.45 0.51 0.43
1.80 1.73 7.7x 8.0x
Page 1 of 9Meritor, Inc.
Piper Jaffray does and seeks to do business with companies
covered in its research reports. As a result, investors should be
awarethat the firm may have a conflict of interest that could
affect the objectivity of this report. Investors should consider
this report asonly a single factor in making their investment
decisions. This report should be read in conjunction with important
disclosureinformation, including an attestation under Regulation
Analyst certification, found on pages 8 - 9 of this report or at
the followingsite:
http://www.piperjaffray.com/researchdisclosures.
2
-
Piper Jaffray Co.
Alexander E. Potter
(612) 303-6709
[email protected]
MERITOR Inc. (MTOR)Income Statement
(millions, except per share amount)
Date: 7/29/2015
Current disclosure information for this company can be found
at:
http://www.piperjaffray.com/researchdisclosures
1Q 2Q 3Q 4Q 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4Q 1Q 2Q 3Q 4Q FY2012
FY2013 FY2014 FY2015E FY2016E
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16
Net sales 891.0 908.0 993.0 902.0 900.0 954.0 979.0 933.0 879.0
864.0 909.0 889.9 941.8 955.5 985.0 920.8 4,418.0 3,694.0 3,751.0
3,541.9 3,803.1
Cost of sales 808.0 813.0 884.0 803.0 795.0 836.0 855.0 793.0
764.0 749.0 785.0 774.2 819.3 831.3 856.9 801.1 3,933.0 3,308.0
3,261.0 3,072.2 3,308.7
Gross profit 83.0 95.0 109.0 99.0 105.0 118.0 124.0 140.0 115.0
115.0 124.0 115.7 122.4 124.2 128.0 119.7 485.0 386.0 490.0 469.7
494.4
Selling, general and administrative 62.0 65.0 67.0 60.0 59.0
66.0 53.0 80.0 65.0 57.0 65.0 - - - - - 285.0 254.0 257.0 187.0
-
Other expenses 7.0 12.0 48.0 (54.0) 2.0 2.0 1.0 7.0 2.0 3.0 8.0
- - - - - 27.0 13.0 12.0 13.0 -
Operating Income from con. Op. 14.0 18.0 (6.0) 93.0 44.0 50.0
70.0 53.0 48.0 55.0 51.0 - - - - - 173.0 119.0 221.0 154.0 -
Equity share unconsolidated affiliates 9.0 10.0 15.0 8.0 8.0 9.0
201.0 10.0 9.0 9.0 10.0 - - - - - 52.0 42.0 228.0 28.0 -
Other income(expense) - - - 3.0 - - - - 2.0 2.0 (1.0) - - - - -
7.0 3.0 - 3.0 -
EBIT 23.0 28.0 9.0 111.0 52.0 59.0 271.0 63.0 59.0 66.0 60.0
56.0 71.7 76.9 82.4 72.9 232.0 171.0 449.0 241.0 304.0
Net interest income (expense) (29.0) (25.0) (45.0) (27.0) (27.0)
(48.0) (22.0) (33.0) (19.0) (21.0) (38.0) (22.7) (22.5) (22.3)
(22.1) (21.8) (95.0) (126.0) (130.0) (100.7) (88.7)
Income before income taxes (6.0) 3.0 (36.0) 84.0 25.0 11.0 249.0
30.0 40 45 22 33 49 55 60 51 137.0 45.0 319.0 140.3 215.3
Income taxes 10.0 7.0 1.0 45.0 11.0 8.0 12.0 - 7.0 6.0 6.0 2.3
8.6 9.6 10.6 8.9 56.0 63.0 32.0 21.3 37.7
Income from continuing operations (16.0) (4.0) (37.0) 39.0 14.0
3.0 237.0 30.0 33 39 16 31 41 45 50 42 81.0 (18.0) 287.0 118.9
177.6
Minority interest - - - 2.0 2.0 2.0 - 1.0 1.0 - 1.0 1.0 1.0 1.0
1.0 1.0 11.0 2.0 5.0 3.0 4.0
Earnings from discontinued ops (5.0) - (1.0) 4.0 (1.0) 3.0 (3.0)
(26.0) (3.0) 4.0 (2.0) - - - - - (18.0) (2.0) (32.0) (1.0) -
Net income (loss) attributed to MTOR (21.0) (4.0) (38.0) 41.0
11.0 4.0 234.0 3.0 29.0 43.0 13.0 29.9 39.6 44.1 48.8 41.2 52.0
(22.0) 252.0 114.9 173.6
Adjustments 5.0 10.0 70.0 (26.0) 1.0 23.0 (208.0) 6.0 3.0 3.0
26.0 - - - - - 41.0 59.0 (178.0) 32.0 -
Adjusted net income (loss) from cont. OP (11.0) 6.0 33.0 11.0
13.0 24.0 29.0 35.0 35 42 41 30 40 44 49 41 111.0 39.0 106.0 147.9
173.6
Diluted income per common share:
Reported EPS (GAAP) ($0.22) ($0.04) ($0.39) $0.42 $0.11 $0.04
$2.31 $0.03 $0.29 $0.42 $0.13 $0.30 $0.40 $0.45 $0.51 $0.43 $0.54
($0.22) $2.54 $1.14 $1.80
Operating EPS (Non-GAAP) ($0.11) $0.06 $0.34 $0.11 $0.13 $0.25
$0.29 $0.35 $0.35 $0.41 $0.41 $0.30 $0.40 $0.45 $0.51 $0.43 $1.14
$0.40 $1.06 $1.47 $1.80
Weighted average diluted shares 96.7 97.2 97.2 98.7 98.7 97.6
101.1 101.3 101.2 102.9 100.3 99.2 98.1 97.0 95.9 94.7 97.2 97.1
99.7 100.9 96.4
EBITDA 46.0 58.0 87.0 70.0 72.0 80.0 82.0 80.0 79.0 87.0 87.0
78.1 93.9 99.2 104.7 95.4 345.0 261.0 320.0 331.1 393.2
Growth Rates:
Total Sales -23.1% -21.7% -10.8% -8.5% 1.0% 5.1% -1.4% 3.4%
-2.3% -9.4% -7.2% -4.6% 7.1% 10.6% 8.4% 3.5% -4.4% -16.4% 1.5%
-5.6% 7.4%
EBIT -34.3% -61.6% -89.9% 217.1% 126.1% 110.7% 2911.1% -43.2%
13.5% 11.9% -77.9% -11.2% 21.6% 16.5% 37.3% 30.3% -8.7% -26.3%
162.6% -46.3% 26.1%
EBITDA -41.8% -38.9% -7.4% -11.4% 56.5% 37.9% -5.7% 14.3% 9.7%
8.7% 6.1% -2.4% 18.8% 14.0% 20.4% 22.2% NA -24.3% 22.6% 3.5%
18.8%
Net income -4.5% -120.0% -177.6% 720.0% -152.4% -200.0% -715.8%
-92.7% 163.6% 975.0% -94.4% 897.6% 36.6% 2.5% 275.2% 37.5% -17.5%
-142.3% -1245.5% -54.4% 51.1%
EPS (operating) -197.7% -81.3% -10.8% -65.1% -215.8% 298.4%
-15.5% 210.0% 162.6% 66.0% 42.5% -12.7% 16.8% 11.3% 24.5% 44.0%
34.1% -64.9% 165.0% 38.7% 22.4%
Margins & Ratios:
GPM 9.3% 10.5% 11.0% 11.0% 11.7% 12.4% 12.7% 15.0% 13.1% 13.3%
13.6% 13.0% 13.0% 13.0% 13.0% 13.0% 11.0% 10.4% 13.1% 13.3%
13.0%
SG&A 7.0% 7.2% 6.7% 6.7% 6.6% 6.9% 5.4% 8.6% 7.4% 6.6% 7.2%
0.0% 0.0% 0.0% 0.0% 0.0% 6.5% 6.9% 6.9% 5.3% 0.0%
EBITDA 5.2% 6.4% 8.8% 7.8% 8.0% 8.4% 8.4% 8.6% 9.0% 10.1% 9.6%
8.8% 10.0% 10.4% 10.6% 10.4% 7.8% 7.1% 8.5% 9.3% 10.3%
Tax rate -166.7% 233.3% -2.8% 53.6% 44.0% 72.7% 4.8% 0.0% 17.5%
13.3% 27.3% 7.0% 17.5% 17.5% 17.5% 17.5% 40.9% 140.0% 10.0% 15.2%
17.5%
FY2016EFY2014A FY2015EFY2013
Page 2 of 9Meritor, Inc. 3
-
MERITOR Inc. (MTOR)Segment & Regional Revenue Analysis
(PJC est) (PJC est) (PJC est)
1Q 2Q 3Q 4Q 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4Q 1Q 2Q 3Q 4Q FY2012
FY2013 FY2014 FY2015E FY2016E
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16
Revenue by Segment & Geography 30.0
North America - - - - - - - - - - - - - - - - 1,836.4 1,468.6
1,527.8 1,722.8 1,845.3
Europe - - - - - - - - - - - - - - - - 712.7 616.8 640.3 610.9
659.7
S. America (mostly Brazil) - - - - - - - - - - - - - - - - 484.0
463.2 422.5 144.5 151.7
China - - - - - - - - - - - - - - - - 262.6 142.4 151.2 98.3
103.2
Other Asia Pacific (Includes India) - - - - - - - - - - - - - -
- - 317.2 229.0 238.2 202.5 263.2
Total Commercial Truck & Industrial 715 712 784 709 727 763
761 729 703 681 705 690 765 762 777 720 3,613.0 2,920.0 2,980.0
2,778.9 3,023.2
Aftermarket & Trailer 203 224 238 233 208 225 253 240 208
212 233 230 209 226 242 232 937.0 898.0 920.0 883.2 909.7
Total Revenue (Before Intersegment) 918 936 1,022 942 935 988
1,014 969 911 893 938 920 974 988 1,019 952 4,550.0 3,818.0 3,900.0
3,662.1 3,932.9
Intersegment Eliminations (27.0) (28.0) (29.0) (33.0) (28.0)
(34.0) (35.0) (36.0) (32.0) (29.0) (29.0) (30.2) (32.1) (32.6)
(33.6) (31.4) (132.0) (117.0) (134.0) (120.2) (129.8)
Total Consolidated Revenue 891 908 993 909 907 954 979 933 879
864 909 890 942 955 985 921 4,418.0 3,701.0 3,766.0 3,541.9
3,803.1
Sales Growth (y/y%) by Segment & Geography
North America - - - - - - - - - - - - - - - - 20.4% -20.0% 4.0%
12.8% 7.1%
Europe - - - - - - - - - - - - - - - - -17.0% -13.5% 3.8% -4.6%
8.0%
S. America (mostly Brazil) - - - - - - - - - - - - - - - -
-37.2% -4.3% -8.8% -65.8% 5.0%
China - - - - - - - - - - - - - - - - -18.6% -45.8% 6.2% -35.0%
5.0%
Other Asia Pacific (Includes India) - - - - - - - - - - - - - -
- - -9.7% -27.8% 4.0% -15.0% 30.0%
Total Commercial Truck & Industrial -26.7% -25.2% -13.2%
-9.5% 1.7% 7.2% -2.9% 2.8% -3.3% -10.7% -7.4% -5.4% 8.8% 11.9%
10.2% 4.3% -5.6% -19.2% 2.1% -6.7% 8.8%
Aftermarket & Trailer -6.9% -7.8% -2.5% 0.4% 2.5% 0.4% 6.3%
3.0% 0.0% -5.8% -7.9% -4.1% 0.6% 6.6% 3.9% 1.0% -1.3% -4.2% 2.4%
-4.0% 3.0%
Total Revenue (Before Intersegment) -23.1% -21.7% -10.9% -7.2%
1.9% 5.6% -0.8% 2.9% -2.6% -9.6% -7.5% -5.1% 6.9% 10.6% 8.6% 3.5%
-4.8% -16.1% 2.1% -6.1% 7.4%
Intersegment Eliminations -20.6% -20.0% -14.7% 13.8% 3.7% 21.4%
20.7% 9.1% 14.3% -14.7% -17.1% -16.2% 0.4% 12.4% 15.9% 4.1% -14.8%
-11.4% 14.5% -10.3% 8.0%
Total Consolidated Revenue -23.1% -21.7% -10.8% -7.8% 1.8% 5.1%
-1.4% 2.6% -3.1% -9.4% -7.2% -4.6% 7.1% 10.6% 8.4% 3.5% -4.4%
-16.2% 1.8% -6.0% 7.4%
Revenue Seasonality Assumptions
Commercial Truck & Industrial 24.5% 24.4% 26.8% 24.3% 24.4%
25.6% 25.5% 24.5% 25.3% 24.5% 25.4% 24.8% 25.3% 25.2% 25.7%
23.8%
Aftermarket & Trailer 22.6% 24.9% 26.5% 25.9% 22.6% 24.5%
27.5% 26.1% 23.6% 24.0% 26.4% 26.1% 23.0% 24.8% 26.6% 25.6%
FY2015E FY2016EFY2014AFY2013
Page 3 of 9Meritor, Inc. 4
-
Piper Jaffray Co.
Alexander E. Potter
(612) 303-6709
[email protected]
MERITOR Inc. (MTOR)Segment Analysis
1Q 2Q 3Q 4Q 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4Q 1Q 2Q 3Q 4Q FY2012
FY2013 FY2014 FY2015E FY2016E
Segment Analysis Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16
Sep-16
Revenue by Segment
Commercial Truck & Industrial 715.0 712.0 784.0 709.0 727.0
763.0 761.0 729.0 703.0 681.0 705.0 689.9 764.6 762.2 776.6 719.8
3,613.0 2,920.0 2,980.0 2,778.9 3,023.2
Aftermarket & Trailer 203.0 224.0 238.0 227.0 202.0 225.0
253.0 240.0 208.0 212.0 233.0 230.2 209.3 225.9 242.0 232.4 937.0
892.0 907.0 883.2 909.7
Intersegment Eliminations (27.0) (28.0) (29.0) (34.0) (29.0)
(34.0) (35.0) (36.0) (32.0) (29.0) (29.0) (30.2) (32.1) (32.6)
(33.6) (31.4) (132.0) (118.0) (136.0) (120.2) (129.8)
Total Consolidated Revenue 891.0 908.0 993.0 902.0 900.0 954.0
979.0 933.0 879.0 864.0 909.0 889.9 941.8 955.5 985.0 920.8 4,418.0
3,694.0 3,751.0 3,541.9 3,803.1
Segment EBITDA & EBIT
Commercial Truck & Industrial 34.0 37.0 67.0 54.0 53.0 57.0
55.0 53.0 56.0 57.0 58.0 49.7 68.1 70.9 74.6 66.2 270.0 192.0 218.0
220.7 279.7
Aftermarket & Trailer 13.0 22.0 25.0 24.0 21.0 24.0 28.0
34.0 25.0 30.0 31.0 30.4 27.8 30.3 32.2 31.1 81.0 84.0 112.0 116.4
121.4
Total segment EBITDA 47.0 59.0 92.0 78.0 74.0 81.0 83.0 87.0
81.0 87.0 89.0 80.1 95.9 101.2 106.7 97.4 351.0 276.0 330.0 337.1
401.2
Unallocated costs, net (1.0) (1.0) (5.0) (8.0) (2.0) (1.0) (1.0)
(7.0) (2.0) - (2.0) (2.0) (2.0) (2.0) (2.0) (2.0) (6.0) (15.0)
(10.0) (6.0) (8.0)
Adjusted EBITDA 46.0 58.0 87.0 70.0 72.0 80.0 82.0 80.0 79.0
87.0 87.0 78.1 93.9 99.2 104.7 95.4 345.0 261.0 320.0 331.1
393.2
Depreciation and Amortization (16.0) (17.0) (16.0) (17.0) (16.0)
(17.0) (17.0) (17.0) (15.0) (17.0) (17.0) (17.1) (17.2) (17.3)
(17.3) (17.4) (63.0) (66.0) (67.0) (66.1) (69.2)
Other costs (7.0) (13.0) (62.0) 58.0 (4.0) (4.0) 206.0 - (5.0)
(4.0) (10.0) (5.0) (5.0) (5.0) (5.0) (5.0) (61.0) (23.0) 198.0
(24.0) (20.0)
EBIT 23.0 28.0 9.0 111.0 52.0 59.0 271.0 63.0 59.0 66.0 60.0
56.0 71.7 76.9 82.4 72.9 221.0 172.0 445.0 241.0 304.0
EBITDA Margins
Commercial Truck & Industrial 4.8% 5.2% 8.5% 7.6% 7.3% 7.5%
7.2% 7.3% 8.0% 8.4% 8.2% 7.2% 8.9% 9.3% 9.6% 9.2% 7.5% 6.6% 7.3%
7.9% 9.3%
Aftermarket & Trailer 6.4% 9.8% 10.5% 10.6% 10.4% 10.7%
11.1% 14.2% 12.0% 14.2% 13.3% 13.2% 13.3% 13.4% 13.3% 13.4% 8.6%
9.4% 12.3% 13.2% 13.4%
Total segment EBITDA 5.3% 6.5% 9.3% 8.6% 8.2% 8.5% 8.5% 9.3%
9.2% 10.1% 9.8% 9.0% 10.2% 10.6% 10.8% 10.6% 7.9% 7.5% 8.8% 9.5%
10.5%
Adjusted EBITDA 5.2% 6.4% 8.8% 7.8% 8.0% 8.4% 8.4% 8.6% 9.0%
10.1% 9.6% 8.8% 10.0% 10.4% 10.6% 10.4% 7.8% 7.1% 8.5% 9.3%
10.3%
EBIT 2.6% 3.1% 0.9% 12.3% 5.8% 6.2% 27.7% 6.8% 6.7% 7.6% 6.6%
6.3% 7.6% 8.0% 8.4% 7.9% 5.0% 4.7% 11.9% 6.8% 8.0%
Incremental Margins
Commercial Truck & Industrial (y/y) 10.4% 15.8% 3.4% 12.2%
158.3% 39.2% 52.2% -5.0% -12.5% 0.0% -5.4% 8.5% 19.6% 17.1% 23.1%
55.2% 11.3% 43.3% -1.3% 24.2%
Aftermarket & Trailer (y/y) 26.7% 10.5% -50.0% -120.0%
-800.0% 200.0% 20.0% 76.9% 66.7% -46.2% -15.0% 36.9% 218.1% 2.0%
13.2% 34.0% -6.7% 186.7% -18.4% 19.1%
Total Adjusted EBITDA (y/y) 12.3% 14.7% 5.8% 10.7% 288.9% 47.8%
35.7% 32.3% -33.3% -7.8% -7.1% 4.5% 23.7% 13.3% 23.3% 55.9% 11.6%
103.5% -5.3% 23.8%
Total Adjusted EBITDA (q/q) 34.7% 70.6% 34.1% 18.7% -100.0%
14.8% 8.0% 4.3% 1.9% -53.3% 0.0% 46.8% 30.5% 38.4% 18.9% 14.6%
FY2013 FY2016EFY2014A FY2015E
Page 4 of 9Meritor, Inc. 5
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Piper Jaffray Co.
Alexander E. Potter
(612) 303-6709
[email protected]
MERITOR Inc. (MTOR)Balance Sheet
(millions, except per share amount)
1Q 2Q 3Q 4Q 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4Q 1Q 2Q 3Q 4Q
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16
ASSETS
Cash and cash equivalents 139.0 117.0 228.0 318.0 300.0 233.0
303.0 247.0 214.0 207.0 345.0 364.5 364.3 366.6 374.9 379.0
Accounts receivable 483.0 555.0 596.0 596.0 534.0 618.0 644.0
610.0 511.0 545.0 530.0 506.5 515.5 528.5 539.4 543.8
Inventories 463.0 420.0 411.0 414.0 432.0 436.0 441.0 379.0
379.0 365.0 365.0 361.3 367.7 377.0 384.8 387.9
Other current assets 56.0 54.0 51.0 56.0 57.0 58.0 56.0 56.0
58.0 55.0 52.0 52.0 52.0 52.0 52.0 52.0
Total current assets 1,141.0 1,146.0 1,286.0 1,384.0 1,323.0
1,345.0 1,444.0 1,292.0 1,162.0 1,172.0 1,292.0 1,284.2 1,299.4
1,324.2 1,351.0 1,362.8
PP&E 407.0 395.0 384.0 417.0 410.0 410.0 411.0 424.0 407.0
387.0 393.0 410.6 414.6 418.9 423.7 427.0
Goodwill 433.0 427.0 427.0 434.0 436.0 437.0 439.0 431.0 423.0
414.0 420.0 420.0 420.0 420.0 420.0 420.0
Other assets 360.0 369.0 380.0 335.0 328.0 339.0 516.0 355.0
354.0 344.0 348.0 348.0 348.0 348.0 348.0 348.0
Total Assets 2,341.0 2,337.0 2,477.0 2,570.0 2,497.0 2,531.0
2,810.0 2,502.0 2,346.0 2,317.0 2,453.0 2,462.9 2,482.0 2,511.1
2,542.7 2,557.8
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, deferred revenues and other 597.0 616.0 657.0
694.0 651.0 696.0 715.0 680.0 597.0 618.0 611.0 614.4 625.5 642.0
656.3 661.7
Other current liabilities 297.0 297.0 328.0 339.0 323.0 345.0
351.0 351.0 292.0 281.0 303.0 303.0 303.0 303.0 303.0 303.0
Short-term debt (incl. curr. port. of LT debt) 23.0 25.0 23.0
13.0 12.0 6.0 5.0 7.0 5.0 5.0 18.0 18.0 18.0 18.0 18.0 18.0
Total current liabilities 917.0 938.0 1,008.0 1,046.0 986.0
1,047.0 1,071.0 1,038.0 894.0 904.0 932.0 935.4 946.5 963.0 977.3
982.7
Long term debt 1,032.0 1,030.0 1,144.0 1,125.0 1,126.0 1,082.0
1,086.0 965.0 962.0 945.0 1,079.0 1,061.5 1,044.0 1,026.5 1,009.0
991.5
Retirement benefits 1,070.0 1,056.0 1,043.0 886.0 875.0 868.0
861.0 775.0 759.0 737.0 729.0 729.0 729.0 729.0 729.0 729.0
Others 333.0 327.0 341.0 335.0 318.0 316.0 319.0 309.0 307.0
301.0 304.0 313.0 314.0 315.0 316.0 317.0
Total Liabilities 3,352.0 3,351.0 3,536.0 3,392.0 3,305.0
3,313.0 3,337.0 3,087.0 2,922.0 2,887.0 3,044.0 3,038.9 3,033.5
3,033.5 3,031.3 3,020.2
Total equity (deficit) (1,041.0) (1,042.0) (1,086.0) (850.0)
(838.0) (813.0) (558.0) (612.0) (603.0) (596.0) (618.0) (603.1)
(578.5) (549.4) (515.6) (489.5)
Noncontrolling interests 30.0 28.0 27.0 28.0 30.0 31.0 31.0 27.0
27.0 26.0 27.0 27.0 27.0 27.0 27.0 27.0
% sales analysis:
LTM sales 4,150.0 3,898.0 3,778.0 3,694.0 3,703.0 3,749.0
3,735.0 3,766.0 3,745.0 3,655.0 3,585.0 3,541.9 3,604.6 3,696.1
3,772.1 3,803.1
LTM COGS 3,688.0 3,475.0 3,378.0 3,308.0 3,295.0 3,318.0 3,289.0
3,279.0 3,248.0 3,161.0 3,091.0 3,072.2 3,127.5 3,209.8 3,281.7
3,308.7
AR 11.6% 14.2% 15.8% 16.1% 14.4% 16.5% 17.2% 16.2% 13.6% 14.9%
14.8% 14.3% 14.3% 14.3% 14.3% 14.3%
Inventory 11.2% 10.8% 10.9% 11.2% 11.7% 11.6% 11.8% 10.1% 10.1%
10.0% 10.2% 10.2% 10.2% 10.2% 10.2% 10.2%
AP as % of COGS 16.2% 17.7% 19.4% 21.0% 19.8% 21.0% 21.7% 20.7%
18.4% 19.6% 19.8% 20.0% 20.0% 20.0% 20.0% 20.0%
Net Working Capital as % of Sales 8.0% 8.7% 8.8% 9.0% 9.1% 9.1%
9.2% 8.9% 8.8% 8.9% 8.6% 8.1% 7.7% 7.3% 7.0% 6.9%
FY2014A FY2015EFY2013 FY2016E
Page 5 of 9Meritor, Inc. 6
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Piper Jaffray Co.
Alexander E. Potter
(612) 303-6709
[email protected]
MERITOR Inc. (MTOR)Statement of Cash Flows
1Q 2Q 3Q 4Q 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4Q 1Q 2Q 3Q 4Q FY2012
FY2013 FY2014 FY2015E FY2016E
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16
Cash flows from operating activities:
Net income (loss) (16.0) (4.0) (37.0) 39.0 14.0 3.0 237.0 30.0
33.0 39.0 16.0 30.9 40.6 45.1 49.8 42.2 81.0 (18.0) 284.0 118.9
177.6
Depreciation and amortization 16.0 17.0 16.0 18.0 16.0 17.0 17.0
17.0 15.0 17.0 17.0 17.1 17.2 17.3 17.3 17.4 63.0 67.0 67.0 66.1
69.2
Exp assoc. with share-based comp, stock option - - - - - - - - -
- - - - - - - - - - - -
Deferred income taxes - - - - - - - - - - - - - - - - - - - -
-
Other 32.0 (97.0) 62.0 41.0 81.0 (44.0) (203.0) 10.0 46.0
(114.0) 174.0 - - - - - 108.0 38.0 (156.0) 106.0 -
Loss on sale of assets - - - - - - - - - - - - - - - - - - - -
-
Changes in assets and liabilities: -
Receivables 59.0 (72.0) (41.0) - 62.0 (84.0) (26.0) 34.0 99.0
(34.0) 15.0 23.5 (9.0) (13.1) (10.9) (4.4) 170.0 (54.0) (14.0)
103.5 (37.4)
Inventories (25.0) 43.0 9.0 (3.0) (18.0) (4.0) (5.0) 62.0 - 14.0
- 3.7 (6.4) (9.3) (7.8) (3.2) 22.0 24.0 35.0 17.7 (26.6)
Accounts payable (100.0) 19.0 41.0 37.0 (43.0) 45.0 19.0 (35.0)
(83.0) 21.0 (7.0) 3.4 11.1 16.5 14.4 5.4 (144.0) (3.0) (14.0)
(65.6) 47.3
Accrued expenses - - - - - - - - - - - - - - - - - - - - -
Other assets and liabilities (47.0) 66.0 (14.0) (140.0) (116.0)
89.0 46.0 (6.0) (119.0) 95.0 (122.0) 8.0 - - - - (211.0) (135.0)
13.0 (138.0) -
Net cash provided by operating activities (81.0) (28.0) 36.0
(8.0) (4.0) 22.0 85.0 112.0 (9.0) 38.0 93.0 86.7 53.5 56.4 62.9
57.4 89.0 (81.0) 215.0 208.7 230.1
Cash flows from investing activities:
Cash payments for PPE (15.0) (8.0) (8.0) (23.0) (12.0) (13.0)
(14.0) (38.0) (12.0) (11.0) (22.0) (34.7) (21.2) (21.5) (22.2)
(20.7) (89.0) (54.0) (77.0) (79.7) (85.6)
Proceeds from sale PPE - - - 1.0 - - - - - - 4.0 - - - - - 18.0
1.0 - 4.0 -
Acquisitions, net of cash - - - 182.0 - - - - - - - - - - - - -
182.0 - - -
Other - 6.0 (5.0) 1.0 - 3.0 - 4.0 - 4.0 - - - - - - 3.0 2.0 7.0
4.0 -
Net cash used by investing activities (15.0) (2.0) (13.0) 161.0
(12.0) (10.0) (14.0) (34.0) (12.0) (7.0) (18.0) (34.7) (21.2)
(21.5) (22.2) (20.7) (68.0) 131.0 (70.0) (71.7) (85.6)
Cash flows from financing activities:
Principal payment on debt (233.0) (3.0) (191.0) (48.0) (4.0)
(304.0) - (131.0) - (16.0) (143.0) - - - - - (86.0) (475.0) (439.0)
(159.0) -
Proceeds from debt 225.0 - 275.0 - - 225.0 - - - - 225.0 (17.5)
(17.5) (17.5) (17.5) (17.5) 100.0 500.0 225.0 207.5 (70.0)
Dividend - - - - - - - - - - (4.0) - - - - - - - - (4.0) -
Issuance of common stock - - - - - - - - - - - - - - - - - - - -
-
Repurchase of common stock - - - - - - - - - (16.0) (14.0)
(15.0) (15.0) (15.0) (15.0) (15.0) - - - (45.0) (60.0)
Others (4.0) - 2.0 1.0 3.0 1.0 (3.0) 1.0 (4.0) (2.0) (1.0) - - -
- - (12.0) (1.0) 2.0 (7.0) -
Net cash provided (used) by financing activities (12.0) (3.0)
86.0 (47.0) (1.0) (78.0) (3.0) (130.0) (4.0) (34.0) 63.0 (32.5)
(32.5) (32.5) (32.5) (32.5) 2.0 24.0 (212.0) (7.5) (130.0)
Effect of exchange rate changes - 1.0 (4.0) (1.0) (1.0) (1.0)
2.0 (4.0) (8.0) (4.0) - - - - - - 1.0 (4.0) (4.0) (12.0) -
Discontinued Operations - net cash used (10.0) 10.0 6.0 (15.0)
(3.0) 3.0 - - - - - - - - - - 16.0 (9.0) - - -
Net increase (decrease) in cash (118.0) (22.0) 111.0 90.0 (21.0)
(64.0) 70.0 (56.0) (33.0) (7.0) 138.0 19.5 (0.2) 2.4 8.2 4.2 40.0
61.0 (71.0) 117.5 14.5
Free cash flow - before acquisitions (96.0) (36.0) 28.0 (31.0)
(16.0) 9.0 71.0 74.0 (21.0) 27.0 71.0 52.0 32.3 34.9 40.7 36.7 -
(135.0) 138.0 129.0 144.5
EBITDA 39.0 45.0 25.0 129.0 68.0 76.0 288.0 80.0 74.0 83.0 77.0
73.1 88.9 94.2 99.7 90.4 236.0 238.0 512.0 307.1 373.2
FY2014A FY2015EFY2013 FY2016E
Page 6 of 9Meritor, Inc. 7
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Piper Jaffray Co.
Alexander E. Potter
(612) 303-6709
[email protected]
MERITOR Inc. (MTOR)Financial Ratios
1Q 2Q 3Q 4Q 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4Q 1Q 2Q 3Q 4Q FY12 FY13
FY14 FY15E FY16E
WORKING CAPITAL MGMT
DSO 52.4 54.8 54.5 54.8 54.5 56.4 58.4 58.2 56.9 58.5 57.8 55.7
52.8 51.9 50.7 50.6 51.8 56.2 58.7 57.5 50.4
DIO 46.2 47.7 47.4 47.4 47.4 46.5 47.4 46.8 46.5 46.2 45.6 43.9
42.9 41.8 41.3 41.4 41.7 47.0 44.4 44.0 41.3
DPO 72.2 73.4 72.2 72.0 71.2 72.9 75.8 76.5 75.0 76.3 76.1 74.1
71.6 70.8 70.1 70.6 71.4 76.7 76.9 76.9 70.4
CCC 26.4 29.1 29.7 30.2 30.7 30.0 30.0 28.5 28.3 28.3 27.3 25.5
24.2 22.9 21.9 21.4 22.1 26.5 26.2 24.6 21.3
Inventory Turns 7.9 7.6 7.7 7.7 7.7 7.9 7.7 7.8 7.9 7.9 8.0 8.3
8.5 8.7 8.8 8.8 8.8 7.8 8.2 8.3 8.8
Payables Turns 5.1 5.0 5.1 5.1 5.1 5.0 4.8 4.8 4.9 4.8 4.8 4.9
5.1 5.2 5.2 5.2 5.1 4.8 4.7 4.7 5.2
Recivable Turns 7.0 6.7 6.7 6.7 6.7 6.5 6.3 6.3 6.4 6.2 6.3 6.6
6.9 7.0 7.2 7.2 7.0 6.5 6.2 6.3 7.2
LEVERAGE
Debt to Total Capital 196% 197% 197% 172% 171% 171% 140% 154%
154% 155% 151% 150% 148% 145% 142% 139% 2865% 395% 270% 227%
194%
Debt to EBITDA 3.3x 3.8x 4.0x 4.2x 3.9x 3.6x 3.7x 3.5x 3.3x 3.1x
3.0x 3.1x 3.0x 2.9x 2.8x 2.7x 355% 462% 204% 334% 280%
Interest Coverage 1.3 1.8 0.6 4.8 2.5 1.6 13.1 -3.9 3.9 4.0 2.0
3.2 4.0 4.2 4.5 4.1 3.1 1.9 4.0 3.0 4.2
Net Cash -1,986 -1,994 -1,982 -1,706 -1,713 -1,723 -1,649 -1,500
-1,512 -1,480 -1,481 -1,444 -1,427 -1,407 -1,381 -1,359 -803 -820
-725 -715 -630
RETURNS
ROS 5% 3% 1% 2% 1% 3% 9% 4% 5% 6% 0% 6% 6% 6% 6% 7% 0% 2.3% 4.2%
5.7% 6.6%
ROE -19% -11% -5% -8% -5% -11% -43% -21% -26% -34% -1% -33% -35%
-37% -42% -46% 0% 14.4% 17.0% 16.5% 18.8%
ROA 8% 5% 2% 3% 2% 4% 14% 6% 7% 9% 0% 8% 9% 9% 10% 10% 0% 3.3%
6.2% 8.1% 10.0%
ROIC 13% 7% 3% 5% 3% 5% 17% 7% 8% 9% 0% 9% 9% 9% 10% 11% 0.0%
5.0% 7.9% 9.0% 10.6%
CASH MANAGEMENT
CAPEX/FCF -100% -135% -74% -40% -93% -560% 188% 56% 58% 50% 55%
62% 49% 52% 62% 59% N/M -40.0% 55.8% 61.8% 59.2%
FCF Yield -15% -10% -15% -24% -8% -1% 3% 13% 11% 12% 12% 0.0%
-23.0% 15.0%
Dividend Yield 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0.0% 0.0%
0.0%
Dividend (total) ($USD) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
0.0 0.0 0.0 0.0 0.0 0.0 0.00 0.00 0.00 0.00 0.00
Dividend Per Share ($USD) - - - - - - - - - - - - - - - - 0.00
0.00 0.00 0.00 0.00
Share Buybacks ($USD) - - - - - - - - - 16.00 14.00 15.00 15.00
15.00 15.00 15.00 0.00 0.00 0.00 45.00 60.00
FY2016EFY2013 FY2014A FY2015E
Page 7 of 9Meritor, Inc. 8
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C O M P A N Y N O T EJ u l y 2 9 , 2 0 1 5
IMPORTANT RESEARCH DISCLOSURES
Notes: The boxes on the Rating and Price Target History chart
above indicate the date of the Research Note, the rating, and the
price target. Eachbox represents a date on which an analyst made a
change to a rating or price target, except for the first box, which
may only represent the first Notewritten during the past three
years.
Legend:I: Initiating CoverageR: Resuming CoverageT: Transferring
CoverageD: Discontinuing CoverageS: Suspending CoverageOW:
OverweightN: NeutralUW: UnderweightNA: Not AvailableUR: Under
Review
Distribution of Ratings/IB ServicesPiper Jaffray
IB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [OW] 427 60.06 103 24.12HOLD [N] 266 37.41 13 4.89SELL [UW]
18 2.53 0 0.00
Note: Distribution of Ratings/IB Services shows the number of
companies currently in each rating category from which Piper
Jaffray and its affiliatesreceived compensation for investment
banking services within the past 12 months. FINRA rules require
disclosure of which ratings most closelycorrespond with "buy,"
"hold," and "sell" recommendations. Piper Jaffray ratings are not
the equivalent of buy, hold or sell, but instead
representrecommended relative weightings. Nevertheless, Overweight
corresponds most closely with buy, Neutral with hold and
Underweight with sell. SeeStock Rating definitions below.
Analyst Certification Alexander E. Potter, Sr Research
AnalystAnalyst Certification Winnie Dong, Research AnalystThe views
expressed in this report accurately reflect my personal views about
the subject company and the subject security. In addition, no part
ofmy compensation was, is, or will be directly or indirectly
related to the specific recommendations or views contained in this
report.
Page 8 of 9Meritor, Inc. 9
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C O M P A N Y N O T EJ u l y 2 9 , 2 0 1 5
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Page 9 of 9Meritor, Inc. 10
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For analyst certification and important disclosures, please
refer to the Disclosure Appendix.
KeyBanc Capital Markets Inc. | Member NYSE/FINRA/SIPC
EstimatesFY ends 9/30 F2014A 1Q15A 2Q15A 3Q15A 4Q15E F2015E
F2016EEPS (Net) $0.96 $0.35 $0.41 $0.41 $0.29 $1.46 $1.76
Cons. EPS -- $0.35 $0.41 $0.33 $0.29 $1.39 $1.67
Previous -- -- -- $0.34 $0.30 $1.40 $1.69
ValuationP/E 14.4x -- -- -- -- 9.4x 7.8x
EV/EBITDA -- -- -- -- -- 6.6x 6.0x
Sources: Company reports, FactSet, KeyBanc Capital Markets
Inc.
July 29, 2015
INDUSTRIAL: Construction & Farm Machinery & HeavyTrucks
(Ind'l)
Earnings Recap / Estimates Change
Meritor, Inc.MTOR: Increasingly Optimistic on LT EBITDAMargin
Potential
Maintaining SW: 1) we are increasingly optimistic the next
3-year plan to beannounced in December could introduce an EBITDA
margin target as high as12%; 2) FY15 FCF guidance increased 10% to
$110M, and we believe annualFCF of $100M+ is sustainable into 2016
and will fund small bolt-on acquisitionsand share repurchases; and
3) mixed end markets outlook keeps us on thesidelines as strong
North American outlook and a stable Europe are offset bychallenging
China and South American commercial vehicle outlook.
Key Investment PointsFollowing 3Q15 earnings release and
conference call, we are maintaining our SW rating:
1) We are increasingly optimistic the next 3-year plan to be
announced in Decembercould introduce an EBITDA margin target as
high as 12%. We are incrementallyconfident MTOR will meet the M16
EBITDA margin objective of 10.0%. Managementis now preparing the
next 3-year plan to be announced in December. The new
marginobjective could be as high as 12% as competition in the
on-highway and off-highwaymarkets, ~75% of MTOR mix, averages
10-14%, and MTOR's remaining 25% of sales,Aftermarket &
Trailer, runs at 13%+ with upside potential.
2) FY15 FCF guidance increased 10% to $110M, and we believe
annual FCF of$100M+ is sustainable into 2016 and will fund small
bolt-on acquisitions andshare repurchases. NOLs, valued at
$1.50-$2.00/share based on our calculations,are expected to provide
a cash tax shield of $25M-$30M annually for an estimated 10years.
We expect capital deployment will continue to be allocated to share
buybacks andpotentially small bolt-on acquisitions as M16 balance
sheet objectives have been met.$161M remains outstanding under the
current buyback authorization, which expires atthe end of 2016.
3) Mixed end markets outlook keeps us on the sidelines as strong
North Americanoutlook and a stable Europe are offset by challenging
China and South Americancommercial vehicle outlook. North American
commercial vehicle outlook is strong, andmanagement increased FY15
guidance to 325K from prior 305K-315K, in line with theindustry
average. A run rate above 300K is expected to continue into FY16.
Europeanproduction outlook continues, stable with positive
indicators. China's outlook deteriorated,and management lowered its
guidance to -35% from prior -20%, in line with consensus.The South
American outlook deteriorated, and management lowered its guidance
to85K-90K units from prior 90K-100K.
Brett D. Hoselton, CFA / (216) [email protected]
Hodakovsky / (216) [email protected] Deem / (216)
[email protected]
NYSE: MTORRating: Sector WeightPrice Target: NAPrice: $13.79
17
16
15
14
13
12
11
10
9Jul-15May-15Mar-15Jan-15Nov-14Sep-14
8
7
6
5
4
3
2
1
0
MTORVol (mil)
Sources: Company reports, FactSet, KeyBanc CapitalMarkets
Inc.
Company Data52-week range $9 - $16
Market Cap. (M) $1,396.9
Shares Out. (M) 101.30
Enterprise Value (M) $2,160.9
Avg. Daily Volume (30D) 1,148,890.0
SI as % of Float 5.2%
SI % Chg. from Last Per. (27.6)%
Book Value/Share $(5.87)
Total Debt/Cap NA
Cash (mm) $247.0
Sources: Company reports, FactSet, KeyBanc CapitalMarkets
Inc.
11
-
Valuation MTOR is currently trading at an EV/EBITDA of 5.7x our
2015 EBITDA estimate of $327M. From 2005-2009,MTOR has traded at an
average EV/EBITDA of 5.5x. MTOR is currently trading at 9.4x our
2015 EPS estimateof $1.46. From 2005-2009, MTOR has traded at an
average 12-month forward P/E of 9x.
Investment Risks We believe the largest risk to our earnings is
a decline in global vehicle production.
Estimate Revisions We are maintaining our FY15 EBITDA estimate
at $327M (FactSet consensus $320M) and our FY16 EBITDAestimate at
$360M (FactSet consensus $359M), and we are increasing our FY15 EPS
estimate to $1.46 from$1.40 (FactSet consensus $1.39) and our FY16
EPS estimate to $1.79 from $1.69 (FactSet consensus $1.67)on lower
interest expense outlook.
Meritor - MTOR Earnings Recap
July 29, 2015Brett D. Hoselton
Pg.2(216) 689-0237 / [email protected]
12
-
Meritor, Inc. Earnings Brett D. Hoselton, CFA (216) 689-0237($
in millions, except per share data; FY ends September 30)
1Q14 2Q14 3Q14 4Q14 2014 1Q15 2Q15 3Q15 4Q15E 2015E 2016E
Revenue Assumptions
NA Prd-M/H Trk (000) 112 118 133 137 500 135 137 147 144 563
545
Year/Year % Chg. 6% 18% 10% 20% 14% 21% 16% 10% 5% 13% -3%
Europe-M/H Trk (000) 114 89 95 95 394 118 100 100 97 414 416
Year/Year % Chg. 18% 9% 8% 9% 11% 3% 12% 5% 2% 5% 0%
Aftermarket 2.5% 3.6% 8.8% 3.0% 4.5% 0.0% -8.6% -10.0% -10.0%
-7.2% 3.0%
Military -30.0% -50.0% -70.0% -70.0% -55.0% -50.0% -50.0% -50.0%
-50.0% -50.0% 0.0%
ROW 0.0% 0.0% 1.5% 1.5% 0.8% 1.5% 1.5% 0.0% 0.0% 0.8% 2.5%
Organic Growth 1.5% 1.5% 1.5% 1.5% 1.5% 1.0% 1.0% 1.0% 1.0% 1.0%
5.5%
Price Reductions 1.5% 1.5% 1.5% 1.5% 1.5% 1.0% 1.0% 1.0% 1.0%
1.0% 1.0%
FX-Euro ($/100) $136.13 $137.03 $136.00 $132.51 $135.42 $124.86
$112.65 $110.65 $110.00 $114.54 $110.00
Revenue Calculation
Ttl. Sgmt. Prior Year $891.0 $908.0 $993.0 $909.0 $3,701.0
$907.0 $962.0 $986.0 $933.0 $3,788.0 $3,501.6
Prod/Demand Chg 19.6 30.0 2.1 21.0 72.8 27.4 4.1 (31.8) (50.5)
(50.8) 2.5
Pricing (13.7) (14.1) (14.9) (14.0) (56.6) (9.3) (9.7) (9.5)
(8.8) (37.4) (35.0)
Org Growth, Mix, etc. (14.8) 5.2 14.9 14.0 19.2 9.3 9.7 9.5 8.8
37.4 192.7
FX-Euro 9.9 7.9 9.0 (0.0) 26.8 (17.0) (37.8) (39.1) (33.0)
(126.9) (30.6)
LVS & Other Divestitures 0.0 0.0
Other 15.0 25.0 (18.1) 3.0 24.8 (38.4) (64.3) (6.1) 0.0 (108.8)
0.0
Sales $907 $962 $986 $933 $3,788 $879 $864 $909 $850 $3,502
$3,631
Gross Profit Calculation
COGS-Estimate $798.2 $846.6 $867.7 $821.0 $3,333.4 $769.1 $756.0
$795.4 $743.4 $3,063.9 $3,159.1
COGS-Adjustment 5.8 (0.6) (4.7) (28.0) (27.4) (5.1) (7.0) (10.4)
(5.5) (28.0) (24.0)
COGS-Total 804.0 846.0 863.0 793.0 3,306.0 764.0 749.0 785.0
737.9 3,035.9 3,135.1
Gross Profit 103.0 116.0 123.0 140.0 482.0 115.0 115.0 124.0
111.7 465.7 496.0
SG&A-Estimate 68.0 72.2 74.0 70.0 284.1 61.5 60.5 63.6 59.5
245.1 254.2
SG&A-Adjustment (9.0) (6.1) (20.0) 8.0 (27.1) 3.5 (3.5) 1.4
(2.0) (0.6) (10.0)
SG&A-Total 59.0 66.0 54.0 78.0 257.0 65.0 57.0 65.0 57.5
244.5 244.2
Amortization & Other 1.0 0.0 1.0 0.0 2.0 (1.0) 0.0 (1.0) 0.0
(2.0) 0.0
Operating Income 43.0 50.0 68.0 62.0 223.0 51.0 58.0 60.0 54.2
223.2 251.9
Interest Exp. (Inc.), Net 27.0 27.0 22.0 33.0 109.0 19.0 21.0
19.0 19.0 78.0 76.0
Equity & Other (Inc.) Exp. (8.0) (9.0) 7.0 (10.0) (20.0)
(11.0) (11.0) (9.0) 0.0 (31.0) (30.0)
Inc. Before Tax 24.0 32.0 39.0 39.0 134.0 43.0 48.0 50.0 35.2
176.2 205.9
Taxes 10.0 9.0 11.0 3.0 33.0 7.0 6.0 8.0 5.5 26.5 34.0
Minority Interest 2.0 2.0 0.0 1.0 5.0 1.0 0.0 1.0 1.0 3.0
3.1
Net Income, Recurring 12.0 21.0 28.0 35.0 96.0 35.0 42.0 41.0
28.8 146.8 168.8
Nonrecurring Items (20.0) 208.0 (6.0) 182.0 (3.0) (3.0) (26.0)
(32.0)
Discontinued Ops 0.0 (2.0) (26.0) (28.0) (3.0) 4.0 (2.0)
(1.0)
Net Income, Reported $12.0 $1.0 $234.0 $3.0 $250.0 $29.0 $43.0
$13.0 $28.8 $113.8 $168.8
Avg. Shrs Out., Basic (Mil.) 98.7 97.6 101.1 101.3 99.7 101.2
102.9 100.3 98.4 100.7 96.0
Avg. Shrs Out., Diluted (Mil.) 98.7 97.6 101.1 101.3 99.7 101.2
102.9 100.3 98.4 100.7 96.0
EPS, Dil., Recurring $0.12 $0.22 $0.28 $0.35 $0.96 $0.35 $0.41
$0.41 $0.29 $1.46 $1.76
EPS, Dil., Reported $0.12 $0.01 $2.31 $0.03 $2.51 $0.29 $0.42
$0.13 $0.29 $1.13 $1.76
Adjusted EBITDA, $70.0 $78.0 $80.0 $80.0 $308.0 $79.0 $87.0
$87.0 $74.2 $327.2 $360.3
EBITDA/Share $0.72 $0.80 $0.82 $0.82 $3.09 $0.79 $0.87 $0.87
$0.74 $3.25 $3.75
Memo: Pro Forma FASB 142
Estimated Goodwill Adj.
EPS, Dil., Post Adjustment
% of Sales
Gross Margin 11.4% 12.1% 12.5% 15.0% 12.7% 13.1% 13.3% 13.6%
13.1% 13.3% 13.7%
SG&A 6.6% 6.9% 5.6% 8.4% 6.8% 7.3% 6.6% 7.0% 6.8% 6.9%
6.7%
Operating Margin 4.7% 5.2% 6.9% 6.6% 5.9% 5.8% 6.7% 6.6% 6.4%
6.4% 6.9%
Net Margin 1.3% 2.2% 2.8% 3.8% 2.5% 4.0% 4.9% 4.5% 3.4% 4.2%
4.6%
Adjusted EBITDA 7.7% 8.1% 8.1% 8.6% 8.1% 9.0% 10.1% 9.6% 8.7%
9.3% 9.9%
Tax Rate 41.7% 28.1% 28.2% 7.7% 24.6% 16.3% 12.5% 16.0% 15.5%
15.0% 16.5%
% Change Year-Over-Year
Sales 1.8% 5.9% -0.7% 2.6% 2.4% -3.1% -10.2% -7.8% -8.9% -7.6%
3.7%
Operating Income 115.0% 72.4% 25.9% -38.0% 9.9% 18.6% 16.0%
-11.8% -12.5% 0.1% 12.8%
Net Income 250.0% -15.2% 218.2% 146.2% 191.7% 100.0% 46.4%
-17.8% 52.9% 15.0%
EPS, Diluted, Recurring 248.6% -18.4% 210.0% 140.0% 184.5% 89.7%
47.6% -15.4% 51.3% 20.7%
Source: Company data; KeyBanc Capital Markets Inc.
estimates.
Meritor - MTOR Earnings Recap
July 29, 2015Brett D. Hoselton
Pg.3(216) 689-0237 / [email protected]
13
-
Meritor, Inc. Earnings Brett D. Hoselton, CFA (216) 689-0237($
in millions, except per share data; FY ends September 30)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2015E 2016E
Revenue Assumptions
NA Prd-M/H Trk (000) 463 582 621 484 377 231 257 381 476 440 500
563 545
Year/Year % Chg. 32% 26% 7% -22% -22% -39% 11% 48% 25% -7% 14%
13% -3%
Europe-M/H Trk (000) 376 421 439 479 562 266 260 383 379 354 394
414 416
Year/Year % Chg. 3% 12% 4% 9% 17% -53% -2% 47% -1% -7% 11% 5%
0%
Aftermarket 2.0% 2.0% 0.0% 0.0% 4.5% -7.2% 3.0%
Military -13.8% -2.5% 28.0% -33.8% -55.0% -50.0% 0.0%
ROW 37.0% 10.0% -20.0% 0.7% 0.8% 0.8% 2.5%
Organic Growth 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -1.7% -2.4% -4.8%
-0.5% 1.5% 1.0% 5.5%
Price Reductions 1.5% 1.5% 1.5% 1.5% 1.5% 1.0% 1.0%
FX-Euro ($/100) $121.70 $125.47 $123.08 $132.55 $150.31 $135.47
$135.65 $139.46 $129.84 $131.22 $135.42 $114.54 $110.00
Revenue Calculation
Ttl. Sgmt. Prior Year $4,457.0 $4,584.0 $4,667.0 $4,418.0
$3,701.0 $3,788.0 $3,501.6
Prod/Demand Chg 673.5 1,271.9 318.0 (351.1) 72.8 (50.8) 2.5
Pricing (77.0) (87.8) (74.8) (61.0) (56.6) (37.4) (35.0)
Org Growth, Mix, etc. (83.8) (150.5) (240.9) (19.8) 19.2 37.4
192.7
FX-Euro 3.3 43.4 (76.3) 9.8 26.8 (126.9) (30.6)
LVS & Other Divestitures (965.0) (389.0) (994.0) (45.0) 0.0
0.0 0.0
Other 0.0 0.0 (130.0) (295.0) 24.8 (108.8) 0.0
Sales $6,882 $7,788 $8,836 $8,903 $9,150 $7,221 $7,167 $4,457
$4,584 $4,667 $4,418 $3,701 $3,788 $3,502 $3,631
Gross Profit Calculation
COGS-Estimate $8,197.8 $8,511.8 $6,695.7 $6,644.8 $4,093.4
$4,212.9 $4,107.0 $3,887.8 $3,256.9 $3,333.4 $3,063.9 $3,159.1
COGS-Adjustment 70.2 7.2 14.3 (130.8) 42.6 (128.9) 86.0 45.2
39.1 (27.4) (28.0) (24.0)
COGS-Total 6,130.0 7,064.0 8,072.0 8,263.0 8,519.0 6,710.0
6,514.0 4,136.0 4,084.0 4,193.0 3,933.0 3,296.0 3,306.0 3,035.9
3,135.1
Gross Profit 752.0 724.0 764.0 640.0 631.0 511.0 653.0 321.0
500.0 474.0 485.0 405.0 482.0 465.7 496.0
SG&A-Estimate 391.3 381.4 370.6 370.3 355.1 355.8 294.6
257.4 214.7 284.1 245.1 254.2
SG&A-Adjustment (2.3) (1.4) 15.4 67.7 (45.1) (9.8) (12.6)
9.6 39.3 (27.1) (0.6) (10.0)
SG&A-Total 400.0 435.0 471.0 394.0 380.0 386.0 438.0 310.0
346.0 282.0 267.0 254.0 257.0 244.5 244.2
Amortization & Other 4.0 (52.0) 2.0 (2.0) 0.0
Operating Income 352.0 289.0 293.0 246.0 251.0 125.0 215.0 11.0
154.0 192.0 214.0 203.0 223.0 223.2 251.9
Interest Exp. (Inc.), Net 105.0 104.0 107.0 127.0 124.0 104.0
89.0 88.0 99.0 95.0 95.0 107.0 109.0 78.0 76.0
Equity & Other (Inc.) Exp. 3.0 (24.0) (10.0) (28.0) (36.0)
(36.0) (43.9) (19.0) (46.0) (73.0) (59.0) (19.0) (20.0) (31.0)
(30.0)
Inc. Before Tax 244.0 209.0 196.0 147.0 163.0 57.0 169.9 (58.0)
101.0 170.0 178.0 115.0 134.0 176.2 205.9
Taxes 78.0 68.0 53.4 34.0 33.0 5.0 37.9 48.0 62.0 77.0 56.0 74.0
33.0 26.5 34.0
Minority Interest 11.0 5.0 10.0 3.0 12.0 15.0 15.0 (3.0) 14.0
17.0 11.0 2.0 5.0 3.0 3.1
Net Income, Recurring 155.0 136.0 132.6 110.0 118.0 37.0 117.0
(103.0) 25.0 76.0 111.0 39.0 96.0 146.8 168.8
Nonrecurring Items (48.0) (172.6) (98.0) (293.0) (191.4) (208.0)
(1,109.0) (10.0) (23.0) (59.0) (57.0) 182.0 (32.0)
Discontinued Ops (28.0) (1.0)
Net Income, Reported $107.0 $136.0 ($40.0) $12.0 ($175.0)
($154.4) ($91.0) ($1,212.0) $15.0 $53.0 $52.0 ($18.0) $250.0 $113.8
$168.8
Avg. Shrs Out., Basic (Mil.) 67.2 67.9 68.6 69.9 69.3 71.1 72.4
72.6 87.2 96.8 97.2 97.2 99.7 100.7 96.0
Avg. Shrs Out., Diluted (Mil.) 67.2 67.9 68.6 69.9 69.3 71.1
72.4 72.6 87.2 96.8 97.2 97.2 99.7 100.7 96.0
EPS, Dil., Recurring $2.31 $2.00 $1.93 $1.57 $1.69 $0.52 $1.60
($1.42) $0.29 $0.79 $1.14 $0.40 $0.96 $1.46 $1.76
EPS, Dil., Reported $1.59 $2.00 ($0.58) $0.17 ($2.51) ($2.17)
($1.26) ($16.70) $0.17 $0.55 $0.53 ($0.19) $2.51 $1.13 $1.76
Adjusted EBITDA, $534.0 $522.0 $476.0 $453.0 $447.0 $275.0
$388.9 $114.0 $266.0 $342.0 $345.0 $261.0 $308.0 $327.2 $360.3
EBITDA/Share $7.95 $7.69 $6.94 $6.48 $6.45 $3.87 $5.37 $1.57
$3.05 $3.53 $3.55 $2.69 $3.09 $3.25 $3.75
Memo: Pro Forma FASB 142
Estimated Goodwill Adj.
EPS, Dil., Post Adjustment
% of Sales
Gross Margin 10.9% 9.3% 8.6% 7.2% 6.9% 7.1% 9.1% 7.2% 10.9%
10.2% 11.0% 10.9% 12.7% 13.3% 13.7%
SG&A 5.8% 5.6% 5.3% 4.4% 4.2% 5.3% 6.1% 7.0% 7.5% 6.0% 6.1%
5.5% 6.8% 6.9% 6.7%
Operating Margin 5.1% 3.7% 3.3% 2.8% 2.7% 1.7% 3.0% 0.2% 3.4%
4.1% 4.8% 5.5% 5.9% 6.4% 6.9%
Net Margin 2.3% 1.7% 1.5% 1.2% 1.3% 0.5% 1.6% 0.5% 1.6% 2.5%
1.1% 2.5% 4.2% 4.6%
Adjusted EBITDA 7.8% 6.7% 5.4% 5.1% 4.9% 3.8% 5.4% 2.6% 5.8%
7.3% 7.8% 7.1% 8.1% 9.3% 9.9%
Tax Rate 32.0% 32.5% 27.2% 23.1% 20.2% 8.8% 22.3% -82.8% 61.4%
45.3% 31.5% 64.3% 24.6% 15.0% 16.5%
% Change Year-Over-Year
Sales 1.1% 13.2% 13.5% 0.8% 2.8% -21.1% -0.7% -37.8% 2.8% 1.8%
-5.3% -16.2% 2.4% -7.6% 3.7%
Operating Income 26.2% -17.9% 1.4% -16.0% 2.0% -50.2% 72.0%
-94.9% 1300.0% 24.7% 11.5% -5.1% 9.9% 0.1% 12.8%
Net Income 69.7% -12.3% -2.5% -17.0% 7.3% -68.6% 216.2% -188.0%
204.0% 46.1% -64.9% 146.2% 52.9% 15.0%
EPS, Diluted, Recurring 67.3% -13.2% -3.5% -18.6% 7.6% -69.2%
207.6% -188.6% 173.9% 45.4% -64.9% 140.0% 51.3% 20.7%Source:
Company data; KeyBanc Capital Markets Inc. estimates.
Meritor - MTOR Earnings Recap
July 29, 2015Brett D. Hoselton
Pg.4(216) 689-0237 / [email protected]
14
-
Meritor, Inc. Balance Sheet Brett D. Hoselton, CFA (216)
689-0237($ in millions, except per share data; FY ends September
30)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2015E 2016E
Cash & Equivalents $56.0 $103.0 $132.0 $187.0 $350.0 $409.0
$497.0 $95.0 $343.0 $217.0 $257.0 $318.0 $247.0 $508.8 $642.3
Accounts Receivable 1,251.0 1,327.0 1,478.0 1,655.0 1,645.0
1,223.0 1,114.0 694.0 579.0 712.0 542.0 596.0 610.0 563.9 584.7
Inventories 458.0 543.0 523.0 541.0 596.0 541.0 623.0 374.0
382.0 460.0 438.0 414.0 379.0 348.0 359.4
Other Current Assets 211.0 266.0 218.0 787.0 502.0 216.0 218.0
97.0 417.0 70.0 61.0 56.0 56.0 56.0 56.0
Total Current Assets 1,976.0 2,239.0 2,351.0 3,170.0 3,093.0
2,389.0 2,452.0 1,260.0 1,721.0 1,459.0 1,298.0 1,384.0 1,292.0
1,476.7 1,642.4
Property, Plant & Equip.-Net 1,179.0 1,332.0 1,032.0 1,013.0
988.0 738.0 775.0 445.0 389.0 421.0 417.0 417.0 424.0 447.5
471.0
Goodwill - Net 808.0 951.0 808.0 801.0 503.0 520.0 522.0 438.0
432.0 431.0 433.0 434.0 431.0 431.0 431.0
Other Assets 688.0 731.0 1,369.0 886.0 929.0 1,142.0 925.0 365.0
337.0 352.0 353.0 335.0 355.0 205.0 205.0
Total Assets $4,651 $5,253 $5,560 $5,870 $5,513 $4,789 $4,674
$2,508 $2,879 $2,663 $2,501 $2,570 $2,502 $2,560 $2,749
Short-term Debt $15.0 $20.0 $3.0 $131.0 $56.0 $18.0 $240.0 $97.0
$84.0 $18.0 $13.0 $7.0 $7.0 $7.0
Accounts Payable 1,150.0 1,311.0 1,366.0 1,483.0 1,649.0 1,342.0
1,287.0 674.0 670.0 841.0 697.0 694.0 680.0 624.4 644.8
Other Current Liabilities 578.0 547.0 602.0 909.0 844.0 719.0
610.0 518.0 720.0 328.0 313.0 339.0 351.0 351.0 351.0
Total Current Liabilities 1,743.0 1,878.0 1,971.0 2,523.0
2,549.0 2,079.0 2,137.0 1,289.0 1,390.0 1,253.0 1,028.0 1,046.0
1,038.0 982.4 1,002.8
Long-term Debt 1,435.0 1,541.0 1,487.0 1,451.0 1,184.0 1,130.0
1,063.0 1,080.0 1,029.0 950.0 1,042.0 1,125.0 965.0 965.0 965.0
Preferred Securities 39.0 39.0 39.0 58.0 0.0 0.0
Other Long-term Liabilities 635.0 832.0 1,075.0 963.0 771.0
1,037.0 1,012.0 1,416.0 1,483.0 1,421.0 1,413.0 1,221.0 1,084.0
1,084.0 1,084.0
Shareholders' Equity 799.0 963.0 988.0 875.0 1,009.0 543.0 462.0
(1,277.0) (1,023.0) (961.0) (982.0) (822.0) (585.0) (471.2)
(302.4)
Total Liab. & Shr. Eqty. $4,651 $5,253 $5,560 $5,870 $5,513
$4,789 $4,674 $2,508 $2,879 $2,663 $2,501 $2,570 $2,502 $2,560
$2,749
Activity Ratios
Inventory Turnover 13.4 14.1 15.1 15.5 15.0 11.8 11.2 8.3 10.8
10.0 8.8 7.7 8.3 8.4 8.9
Receivable Turnover 6.2 6.0 6.3 5.7 5.5 5.0 6.1 4.9 7.2 7.2 7.0
6.5 6.3 6.0 6.3
Total Asset Turnover 1.5 1.6 1.6 1.6 1.6 1.4 1.5 1.2 1.7 1.7 1.7
1.5 1.5 1.4 1.4
Liquidity Ratios
Quick Ratio 0.7 0.8 0.8 0.7 0.8 0.8 0.8 0.6 0.7 0.7 0.8 0.9 0.8
1.1 1.2
Current Ratio 1.1 1.2 1.2 1.3 1.2 1.1 1.1 1.0 1.2 1.2 1.3 1.3
1.2 1.5 1.6
Debt Ratios
EBIT Interest Coverage 3.2 2.9 2.7 2.1 2.1 1.4 2.5 0.4 1.8 2.5
2.7 2.0 2.1 3.0 3.2
EBITDA Interest Coverage 5.0 4.9 4.3 3.5 3.4 2.5 4.0 1.3 2.5 3.2
3.3 2.6 2.7 3.8 3.9
Funds from Ops./Total Debt 24.2% 22.4% 21.2% 18.5% 23.4% 14.5%
20.1% -1.9% 9.2% 13.7% 16.4% 9.3% 16.8% 21.9% 24.2%
Free Oper. CF/Total Debt 11.8% 3.9% 22.0% 0.6% 20.6% 1.5% -4.1%
-6.3% 8.3% -3.1% 11.7% -0.9% 10.8% 14.9% 13.7%
Long Term Debt/Capital 63.1% 60.6% 59.1% 60.9% 54.0% 67.5% 69.7%
1736.7% 371.3% 253.9% 195.4% 145.6%
Total Debt/Capital 63.4% 60.9% 59.2% 62.9% 55.1% 67.9% 73.8%
1359.0% 360.1% 251.2% 194.1% 145.2%
Return On Investment Ratios
Return On Avg. Total Assets 5.0% 4.2% 3.9% 3.6% 3.8% 2.6% 3.9%
1.6% 2.3% 4.6% 6.8% 3.0% 7.0% 8.4% 8.7%
Return On Average Equity 20.4% 15.4% 13.6% 11.8% 12.5% 4.8%
23.3%
Return On Total Capital 15.4% 12.3% 11.2% 10.5% 11.5% 7.2%
13.5%
Source: Company data; KeyBanc Capital Markets Inc.
estimates.
Meritor - MTOR Earnings Recap
July 29, 2015Brett D. Hoselton
Pg.5(216) 689-0237 / [email protected]
15
-
Meritor, Inc. Cash Flow Brett D. Hoselton, CFA (216) 689-0237($
in millions, except per share data; FY ends September 30)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2015E 2016E
Net Income, Reported $107.0 $136.0 ($40.0) $12.0 ($175.0)
($154.4) ($91.0) ($1,077.0) $12.0 $82.0 $52.0 ($18.0) $250.0 $113.8
$168.8
Depreciation & Amortization 196.0 214.0 183.0 182.0 172.0
129.0 145.0 81.0 70.0 66.0 63.0 67.0 67.0 66.5 66.5
Net Chg. In Working Capital 4.0 (96.0) 164.0 (136.0) 116.0
(29.0) (144.0) 59.0 46.0 (69.0) 39.0 (62.0) 19.0 21.5 (11.8)
Other -Pension, etc. (123.0) 1.0 (88.0) (90.0) 327.0 90.4 265.0
642.0 83.0 (38.0) (77.0) (83.0) (89.0) (10.0) 0.0
Operating Cash Flow $184 $255 $219 ($32) $440 $36 $163 ($295)
$211 $41 $77 ($96) $247 $192 $223
Capital Expenditures (184.0) (193.0) (152.0) (146.0) (150.0)
(120.0) (172.0) (111.0) (56.0) (105.0) (89.0) (54.0) (77.0) (90.0)
(90.0)
Sale of Prop., Plant & Equip. 65.0 12.0 9.0 18.0 1.0
Acquisitions/Divestitures 11.0 21.0 82.0 18.0 (6.0) 199.0 (57.0)
(69.0) 28.0 182.0
Other (25.0) 0.0 (50.0) 153.0 201.0 5.0 5.0 125.0 (8.0) 2.0 3.0
8.0 160.0 160.0
Investing Cash Flow ($198) ($172) ($120) $25 $110 $96 ($160) $14
($64) ($172) ($40) $137 $83 $70 ($90)
Net Changes In Stock 4.0 6.0 1.0 28.0 209.0 6.0
Net Changes In ST Debt 112.0 (37.0) (9.0) 0.0 0.0 14.0
Net Changes In LT Debt (9.0) (29.0) (55.0) (26.0) (264.0) (49.0)
132.0 (83.0) (54.0) 0.0 25.0
Dividends Paid (27.0) (27.0) (28.0) (28.0) (28.0) (29.0) (29.0)
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other (4.0) (100.0) (11.0) (6.0) (14.0) (58.0) 0.0 (12.0)
(1.0)
Financing Cash Flow ($32) ($56) ($77) $54 ($391) ($98) $97
($106) $97 $6 $2 $24 $0 $0 $0
Exchange Rate Gain/(Loss) 1.0 20.0 7.0 8.0 4.0 25.0 (12.0)
(15.0) 4.0 (1.0) 1.0 (4.0)
Net Incr./Decr. In Cash ($45) $47 $29 $55 $163 $59 $88 ($402)
$248 ($126) $40 $61 $330 $262 $133
Beginning Cash Balance 101.0 56.0 103.0 132.0 187.0 350.0 409.0
497.0 95.0 343.0 217.0 257.0 318.0 648.0 909.8
Ending Cash Balance $56.0 $103.0 $132.0 $187.0 $350.0 $409.0
$497.0 $95.0 $343.0 $217.0 $257.0 $318.0 $648.0 $909.8 $1,043.3
EBITDA & Enterprise Value
Net Income $155.0 $136.0 $132.6 $110.0 $118.0 $37.0 $117.0
($103.0) $25.0 $76.0 $111.0 $39.0 $96.0 $146.8 $168.8
Net Interest Exp. (Inc.) 105.0 104.0 107.0 127.0 124.0 104.0
89.0 88.0 99.0 95.0 95.0 107.0 109.0 78.0 76.0
Taxes 78.0 68.0 53.4 34.0 33.0 5.0 37.9 48.0 62.0 77.0 56.0 74.0
33.0 26.5 34.0
Depreciation & Amortization 196.0 214.0 183.0 182.0 172.0
129.0 145.0 81.0 70.0 66.0 63.0 67.0 67.0 66.5 66.5
MTOR Adjustments 10.0 28.0 20.0 (26.0) 3.0 9.5 15.0
EBITDA $534 $522 $476 $453 $447 $275 $389 $114 $266 $342 $345
$261 $308 $327 $360
EBITDA/Share $7.95 $7.69 $6.94 $6.48 $6.45 $3.87 $5.37 $1.57
$3.05 $3.53 $3.55 $2.69 $3.09 $3.25 $3.75
Stock Price $22.67 $17.05 $20.46 $18.05 $15.50 $18.64 $13.17
$4.65 $12.56 $16.55 $6.50 $5.68 $11.19 $13.79 $13.79
Average Comm. Shares Out 67.2 67.9 68.6 69.9 69.3 71.1 72.4 72.6
87.2 96.8 97.2 97.2 99.7 100.7 96.0
Short & Long Term Debt 1,450.0 1,561.0 1,490.0 1,582.0
1,240.0 1,148.0 1,303.0 1,177.0 1,029.0 1,034.0 1,060.0 1,138.0
972.0 972.0 972.0
Preferred Securities 39.0 39.0 39.0 58.0 0.0 0.0
Cash & Equivalents 56.0 103.0 132.0 187.0 350.0 409.0 497.0
95.0 343.0 217.0 257.0 318.0 247.0 508.8 642.3
Enterprise Value $2,956 $2,654 $2,800 $2,715 $1,964 $2,063
$1,759 $1,419 $1,781 $2,418 $1,435 $1,372 $1,840 $1,852 $1,653
Enterprise Value/EBITDA 5.5 5.1 5.9 6.0 4.4 7.5 4.5 12.5 6.7 7.1
4.2 5.3 6.0 5.7 4.6Enterprise Value = (Price x Shares) + LTD +
Preferred Equity/Convertible Debt - Cash / Marketable
Securities.
Source: Company data; KeyBanc Capital Markets Inc.
estimates.
Meritor - MTOR Earnings Recap
July 29, 2015Brett D. Hoselton
Pg.6(216) 689-0237 / [email protected]
16
-
Meritor, Inc. - MTORWe expect to receive or intend to seek
compensation for investment banking services from Meritor, Inc.
within the next three months.As of the date of this report, we make
a market in Meritor, Inc..For the three-year history represented in
this chart, this stock has been rated Sector Weight.
Reg A/C CertificationThe research analyst(s) responsible for the
preparation of this research report certifies that:(1) all the
views expressedin this research report accurately reflect the
research analyst's personal views about any and all of the
subjectsecurities or issuers; and (2) no part of the research
analyst's compensation was, is, or will be directly or
indirectlyrelated to the specific recommendations or views
expressed by the research analyst(s) in this research report.
Three-Year Rating and Price Target History
Rating Disclosures
Distribution of Ratings/IB Services Firmwide and by Sector
KeyBanc Capital MarketsIB Serv/Past 12 Mos.
Rating Count Percent Count Percent
Overweight [OW] 356 45.76 84 23.60Sector Weight [SW] 406 52.19
66 16.26Underweight [UW] 16 2.06 0 0.00
INDUSTRIALIB Serv/Past 12 Mos.
Rating Count Percent Count Percent
Overweight [OW] 107 44.77 21 19.63Sector Weight [SW] 131 54.81 9
6.87Underweight [UW] 1 0.42 0 0.00
Disclosure Appendix
July 29, 2015Brett D. Hoselton
Pg.7(216) 689-0237 / [email protected]
17
-
Rating System
Overweight - We expect the stock to outperform the analyst's
coverage sector over the coming 6-12 months.
Sector Weight - We expect the stock to perform in line with the
analyst's coverage sector over the coming 6-12months.
Underweight - We expect the stock to underperform the analyst's
coverage sector over the coming 6-12 months.
Note: KeyBanc Capital Markets changed its rating system after
market close on February 27, 2015. The previousratings were Buy,
Hold and Underweight. Additionally, Pacific Crest Securities
changed its rating system to matchKeyBanc Capital Markets rating
system after market close on April 10, 2015, in conjunction with
the merger ofthe broker dealers. The previous ratings were
Outperform, Sector Perform and Underperform.
Other DisclosuresKeyBanc Capital Markets is a trade name under
which corporate and investment banking products and services
ofKeyCorp and its subsidiaries, KeyBanc Capital Markets Inc.,
Member NYSE/FINRA/SIPC (KBCMI), and KeyBank NationalAssociation
(KeyBank N.A.), are marketed. Pacific Crest Securities is a
division of KeyBanc Capital Markets Inc.
KeyBanc Capital Markets Inc. (KBCMI) does and seeks to do
business with companies covered in its research reports. Asa
result, investors should be aware that the firm may have a conflict
of interest that could affect the objectivity of this
report.Investors should consider this report as only a single
factor in making their investment decision.
This report has been prepared by KBCMI. The material contained
herein is based on data from sources considered to bereliable;
however, KBCMI does not guarantee or warrant the accuracy or
completeness of the information. It is published forinformational
purposes only and should not be used as the primary basis of
investment decisions. Neither the informationnor any opinion
expressed constitutes an offer, or the solicitation of an offer, to
buy or sell any security. The opinions andestimates expressed
reflect the current judgment of KBCMI and are subject to change
without notice. This report may containforward-looking statements,
which involve risk and uncertainty. Actual results may differ
significantly from the forward-lookingstatements. This report is
not intended to provide personal investment advice and it does not
take into account the specificinvestment objectives, financial
situation and the specific needs of any person or entity.
No portion of an analysts compensation is based on a specific
banking transaction; however, part of his/her compensationmay be
based upon overall firm revenue and profitability, of which
investment banking is a component. Individuals associatedwith KBCMI
(other than the research analyst(s) listed on page 1 of this
research report) may have a position (long or short) inthe
securities covered in this research report and may make purchases
and/or sales of those securities in the open marketor otherwise
without notice. As required by NASD Rule 2711(h)(1)(A), financial
interest, if any, by any research analystslisted on page 1 of this
report will be disclosed in Important Disclosures, Company-specific
regulatory disclosures locatedabove in the Disclosure Appendix.
KBCMI itself may have a position (long or short) in the securities
covered in this researchreport and may make purchases and/or sales
of those securities in the open market or otherwise without notice.
As requiredby NASD Rule 2711(h)(1)(B), if KBCMI beneficially owns
1% or more of any class of common equity securities of the
subjectcompany(ies) in this research report as of the end of the
month immediately preceding the date of publication of this
researchreport will be disclosed in Important Disclosures,
Company-specific regulatory disclosures located above in the
DisclosuresAppendix. This communication is intended solely for use
by KBCMI clients. The recipient agrees not to forward or copy
theinformation to any other person without the express written
consent of KBCMI.
Disclosure Appendix (cont'd)
July 29, 2015Brett D. Hoselton
Pg.8(216) 689-0237 / [email protected]
18
-
For analyst certification and important disclosures, please
refer to the Disclosure Appendix.
KeyBanc Capital Markets Inc. | Member NYSE/FINRA/SIPC
AlertJuly 29, 2015
INDUSTRIAL: Construction & Farm Machinery &Heavy Trucks
(Ind'l)
NYSE: MTOR
Meritor, Inc. (Sector Weight)MTOR - ALERT: First Look: 9% EBITDA
Beat; Increased 2015 FCF Guidance by 10%and EBITDA to 3% Above
ConsensusBrett D. Hoselton, CFA / (216) 689-0237 /
[email protected] Hodakovsky / (216) 689-5374 /
[email protected] Deem / (216) 689-0294 /
[email protected]
Key Investment PointsWe believe investors will view the earnings
release favorably as:
1) adjusted earnings of $0.41 were 24% above the Streets
expectations of $0.33, adjusted EBITDA of $87M was 9% above the
Streetsexpectations of $80M and EBITDA margin of 9.6% was 80 bps
above the Streets expectations of 8.8%, on in line revenue results
of $909M;
2) Management revised FY15 guidance above consensus, as
follows:
increased free cash flow by 10% to $110M from prior ~ $100M
implied adjusted EBITDA increased to a range of $326M-$330M from
prior range of $319M-$327M, ~3% above consensus of $318M at
mid-point increased adjusted EBITDA margin to ~9.3% from prior
range of 9.0-9.2%, or 30 bps above consensus of 9.0% increased
adjusted EPS to a range of $1.40-$1.50 from $1.30-$1.40, ~4% above
consensus of $1.40 at mid-point maintained revenue outlook in the
range of $3.50B-$3.55B, in line with consensusEPS:
$0.41: Recurring $0.34: KBCM $0.33: FactSet $0.28: Prior
YearRevenue:
$909M Recurring $864M KeyBanc $908M FactSet $986M Prior Year
Adjusted EBITDA
$87M: Recurring $83M: KBCM $80M: FactSet $80M: Prior YearEBITDA
Margin:
9.6%: Recurring 9.0%: KBCM 8.8%: FactSet 8.1%: Prior Year
19
-
Meritor, Inc. - MTORWe expect to receive or intend to seek
compensation for investment banking services from Meritor, Inc.
within the next three months.As of the date of this report, we make
a market in Meritor, Inc..For the three-year history represented in
this chart, this stock has been rated Sector Weight.
Reg A/C CertificationThe research analyst(s) responsible for the
preparation of this research report certifies that:(1) all the
views expressedin this research report accurately reflect the
research analyst's personal views about any and all of the
subjectsecurities or issuers; and (2) no part of the research
analyst's compensation was, is, or will be directly or
indirectlyrelated to the specific recommendations or views
expressed by the research analyst(s) in this research report.
Three-Year Rating and Price Target History
Rating Disclosures
Distribution of Ratings/IB Services Firmwide and by Sector
KeyBanc Capital MarketsIB Serv/Past 12 Mos.
Rating Count Percent Count Percent
Overweight [OW] 356 45.76 84 23.60Sector Weight [SW] 406 52.19
66 16.26Underweight [UW] 16 2.06 0 0.00
INDUSTRIALIB Serv/Past 12 Mos.
Rating Count Percent Count Percent
Overweight [OW] 107 44.77 21 19.63Sector Weight [SW] 131 54.81 9
6.87Underweight [UW] 1 0.42 0 0.00
Disclosure Appendix
July 29, 2015Brett D. Hoselton
Pg.2(216) 689-0237 / [email protected]
20
-
Rating System
Overweight - We expect the stock to outperform the analyst's
coverage sector over the coming 6-12 months.
Sector Weight - We expect the stock to perform in line with the
analyst's coverage sector over the coming 6-12months.
Underweight - We expect the stock to underperform the analyst's
coverage sector over the coming 6-12 months.
Note: KeyBanc Capital Markets changed its rating system after
market close on February 27, 2015. The previousratings were Buy,
Hold and Underweight. Additionally, Pacific Crest Securities
changed its rating system to matchKeyBanc Capital Markets rating
system after market close on April 10, 2015, in conjunction with
the merger ofthe broker dealers. The previous ratings were
Outperform, Sector Perform and Underperform.
Other DisclosuresKeyBanc Capital Markets is a trade name under
which corporate and investment banking products and services
ofKeyCorp and its subsidiaries, KeyBanc Capital Markets Inc.,
Member NYSE/FINRA/SIPC (KBCMI), and KeyBank NationalAssociation
(KeyBank N.A.), are marketed. Pacific Crest Securities is a
division of KeyBanc Capital Markets Inc.
KeyBanc Capital Markets Inc. (KBCMI) does and seeks to do
business with companies covered in its research reports. Asa
result, investors should be aware that the firm may have a conflict
of interest that could affect the objectivity of this
report.Investors should consider this report as only a single
factor in making their investment decision.
This report has been prepared by KBCMI. The material contained
herein is based on data from sources considered to bereliable;
however, KBCMI does not guarantee or warrant the accuracy or
completeness of the information. It is published forinformational
purposes only and should not be used as the primary basis of
investment decisions. Neither the informationnor any opinion
expressed constitutes an offer, or the solicitation of an offer, to
buy or sell any security. The opinions andestimates expressed
reflect the current judgment of KBCMI and are subject to change
without notice. This report may containforward-looking statements,
which involve risk and uncertainty. Actual results may differ
significantly from the forward-lookingstatements. This report is
not intended to provide personal investment advice and it does not
take into account the specificinvestment objectives, financial
situation and the specific needs of any person or entity.
No portion of an analysts compensation is based on a specific
banking transaction; however, part of his/her compensationmay be
based upon overall firm revenue and profitability, of which
investment banking is a component. Individuals associatedwith KBCMI
(other than the research analyst(s) listed on page 1 of this
research report) may have a position (long or short) inthe
securities covered in this research report and may make purchases
and/or sales of those securities in the open marketor otherwise
without notice. As required by NASD Rule 2711(h)(1)(A), financial
interest, if any, by any research analystslisted on page 1 of this
report will be disclosed in Important Disclosures, Company-specific
regulatory disclosures locatedabove in the Disclosure Appendix.
KBCMI itself may have a position (long or short) in the securities
covered in this researchreport and may make purchases and/or sales
of those securities in the open market or otherwise without notice.
As requiredby NASD Rule 2711(h)(1)(B), if KBCMI beneficially owns
1% or more of any class of common equity securities of the
subjectcompany(ies) in this research report as of the end of the
month immediately preceding the date of publication of this
researchreport will be disclosed in Important Disclosures,
Company-specific regulatory disclosures located above in the
DisclosuresAppendix. This communication is intended solely for use
by KBCMI clients. The recipient agrees not to forward or copy
theinformation to any other person without the express written
consent of KBCMI.
Disclosure Appendix (cont'd)
July 29, 2015Brett D. Hoselton
Pg.3(216) 689-0237 / [email protected]
21
-
United States EditionJuly 13, 2015
www.BuySellSignals.com Page 1
Meritor (MTOR : US$13.60)
Meritor increases 7.9% in trailingyearMeritor, Inc., NYSE's 3rd
largest Commercial Vehicles &Trucks sector company by market
cap, increased 99.40c (or7.9%) in the trailing 12 months to July
13, 2015 to close atUS$13.60. Compared with the S&P 500 Index
which has risen6.7% over the same period, this is a relative price
increase of1.2%. Average daily volume of 1.3 million shares in
thetrailing year was 0.9 times average daily volume in theprevious
year. In the trailing 12 months the market cap hasjumped US$80.8
million.
Introduction with TrendsWe are currently bullish on this stock
in theshort-term based on technical indicators, butare neutral in
the long-term based onfundamental metricsWhat makes us bullish on
the stock is the following:
In the last three months the number of risesoutnumbered falls
32:31 or 1.03:1.
The price to 200-day MAP ratio is 1.02, a bullishindicator.
However, there are some reasons why we remainneutral on the
stock for the long-term:
Price/Earnings of 5.3 versus sector average of 15.0 andmarket
average of 20.4.
Return on Assets of 10% versus sector average of 6.9%and market
average of 2.6%.
Fig 1: Stock Summary
52-Week Range US$9.46-US$15.65
Sector Commercial Vehicles &
Trucks
Market Cap US$1.3 billion
EPS Growth % (q.o.q) 45.8
Shares Outstanding 96,551,713
ISIN US0433531011
PermID 1-4295912004
Relative Strength (3 mo) 87
Fig 2: Financial SummaryYear ended Sep 2014 Sep 2013 Sep
2012Sales (USD B) 4 3.8 4.5
Pretax (USD M) 315 51 137
Net (